PRICING BONDS WITH SEMI-ANNUAL COUPON PAYMENTS -

(a) Calculate the price of a 4 percent coupon, $100 face value, 3-year bond if the coupon is paid semi-annually and the (correct) annual discount rate is 10 percent. Calculate your actual return if you hold this bond for one year and the discount rate does not change. (INCLUDE FORMULAS USED TO SOLVE PROBLEM).

PRICING ZERO COUPON BONDS -

(b) Calculate the price of a zero coupon, $1,000 face value, 20-year bond if the appropriate annual discount rate is 8 percent. Calculate your total return if you hold this bond for five years and the discount rate does not change. (INCLUDE FORMULAS USED TO SOLVE PROBLEM).

CURRENT YIELD -

(c) Calculate the price of a 4 percent coupon (annual coupons), $100 face value, 3-year bond if the appropriate discount rate is 10 percent each year. What is the bond's current yield? What return do you actually expect to make if you hold this bond for one year? (INCLUDE FORMULAS USED TO SOLVE PROBLEM).